Car Buyer S Bill of Rights Rules

Car Buyer’s Bill of Rights Detailed Analysis

Two Day Cooling Off Period

The Car Buyer’s Bill of Rights, signed into law by Governor Schwarzenegger on July 26, 2005, makes additional requirements of used motor vehicle dealers in 2006. Effective July 1, 2006, used motor vehicle dealers will be required to do the following:

1. Two Day Cooling Off Period

A. Requirements

1. Used motor vehicles dealers must

2. Offer a Two Day Cooling Off Period Option to

3. Retail buyers of vehicles sold for

4. Less than $40,000.00.

5. This excludes motorcycles, off-road vehicles, and RV’s.

6. The retail buyer can return the vehicle for any reason

7. Within two days of taking delivery, provided that he or she has

8. Driven fewer than 250 miles (or higher if the dealer agrees)

9. The vehicle must be returned “Undamaged”

a. “Undamaged” means in substantially the same condition as at time of delivery, normal wear and tear excepted. The dealer gets to determine whether the vehicle is undamaged and in substantially the same condition as at time of delivery.

10. Except for defects/problems that became evident after delivery.

11. The Two Day Cooling Off Period option must be a separate document from the sales contract.

12. This separate document will most commonly be referred to as the
“Contract Cancellation Option Agreement”, or “Cancellation Agreement.” See details below.

13. If the vehicle is returned, the dealer must cancel the contract and provide a Full Refund to the buyer within two days of the date of cancellation.
“Full Refund” includes sales tax, and reg. fees, but not:

a. The fee for the Cancellation Agreement (see below)

b. The Re-Stocking fee (see below). Note that the fee for the Cancellation Agreement must be subtracted from the Re-Stocking fee.

c. Note: You do not have to refund DMV fees if the buyer demands title at the sale and completes the registration themselves.

B. Measuring the “2 Days” for the Cooling Off Period
The two days of the cooling off period begin to run at time of delivery.
The two days must be two regular business days for that dealer. In other words, if you sell the vehicle Friday evening at 7:00 p.m., and your dealership is open Saturday, but not Sunday, the buyer has until 7:00 p.m. Monday evening to return the car within the required two (business) day time period.

C. Two Day Cooling Off Period Fee
New Vehicle Code Section 11713.21 (a)-(d) allows the dealer to charge the following maximum amounts for the two day cooling off period option contract:

1. Seventy-five dollars ($75) for a vehicle with a cash price of five thousand dollars ($5,000) or less.

2. One hundred fifty dollars ($150) for a vehicle with a cash price of more than five thousand dollars ($5,000), but not more than ten thousand dollars ($10,000).

3. Two hundred fifty dollars ($250) for a vehicle with a cash price of more than ten thousand dollars ($10,000), but not more than thirty thousand dollars ($30,000).

4. One percent of the purchase price for a vehicle with a cash price of more than thirty thousand dollars ($30,000), but not more than forty thousand dollars ($40,000).

D. Re-Stocking Fee
The dealer may also charge a re-stocking fee. This fee must also be put in writing. The restocking fee shall not exceed the following:

1. One hundred seventy-five dollars ($175) if the vehicle's cash price is five thousand dollars ($5,000) or less;

2. Three hundred fifty dollars ($350) if the vehicle's cash price is less than ten thousand dollars ($10,000); and

3. Five hundred dollars ($500) if the vehicle cash price is ten thousand dollars ($10,000) or more.

4. Note: The dealer shall apply the cost of the option to cancel the contract toward the restocking fee. For example, if the vehicle is sold for less than $5,000, the dealer can charge $75.00 for the option to cancel the contract. If the buyer then elects to cancel the contract within the next two days, the dealer can also charge the $175.00 re-stocking fee. However, the dealer must credit the $75.00 already paid for the option to cancel at the time the sale was made to the restocking fee. So, in effect, the dealer gets to keep the original $75.00 collected for the option to cancel, and an additional $100.00 for the re-stocking fee.

E. Trade Ins
If, as part of the purchase, the buyer traded in a vehicle and was not charged for the cancellation option, the dealer shall return to the buyer, no later than the day following the day on which the buyer exercises the right to cancel the purchase, any motor vehicle the buyer left with the seller as a down payment or trade-in. If the dealer has sold or otherwise transferred title to the motor vehicle that was left as a down payment or trade-in, the dealer must pay the buyer either the agreed value of the vehicle as written into the contract or the fair market value, whichever is higher.

F. The Contract Cancellation Option Agreement
This is the agreement the buyer pays for and signs for the option to bring the vehicle back within two days of delivery. It must meet the following requirements:

1. Must be a separate document from the sales document

2. Must include the VIN and description of the vehicle

3. Must specify a minimum of Two Business Days for cancellation
“Two Business Days” means the next two days you are open for business.

4. Must specify the maximum number of miles allowed (minimum of 250 required)

5. Must specify the condition of the vehicle for return

6. Must state the last date and time the buyer can cancel

7. Must include a place for the buyer to sign electing the option to cancel

8. Failure to offer the buyer this Cancellation Agreement is a cause for action against a dealer’s license.

G. The Sales Contract

1. Must include a new disclosure next to the place for the buyer’s signature notifying the buyer that a used vehicle (sold for under $40,000) may be returned and the purchase cancelled within the time frame specified in the Cancellation Option Agreement.

2. Must contain the new two day cooling off period notice set forth in Section 2, “Cooling Off Period Notice” below.

3. All of the form company providers should have these new disclosures inserted into their standard form conditional sales contracts by July 1, 2006, when this new law becomes effective. However, make sure to throw out all your old forms so they are not used by mistake.

H. 2 Day Cooling Off Period Sign Posting

1. You must remove your current “No Cooling Off Period” signs at the dealership. Then you will need to conspicuously display the new two day cooling off period notice, not less than eight inches high and ten inches wide, in each sales office and sales cubicle of your established place of business where written terms of specific sale or lease transactions are discussed with prospective purchasers or lessees. You will also need to place these new notices in each room of your established place of business where sale and lease contracts are regularly executed. These notices must state the following:
"THERE IS NO COOLING-OFF PERIOD UNLESS YOU OBTAIN A CONTRACT CANCELLATION OPTION"
California law does not provide for a "cooling-off" or other cancellation period for vehicle lease or purchase contracts.

Therefore, you cannot later cancel such a contract simply because you change your mind, decide the vehicle costs too much, or wish you had acquired a different vehicle. After you sign a motor vehicle purchase or lease contract, it may only be canceled with the agreement of the seller or lessor or for legal cause, such as fraud.
However, California law does require a seller to offer a 2-day contract cancellation option on used vehicles with a purchase price of less than $40,000, subject to certain statutory conditions. This contract cancellation option requirement does not apply to the sale of a motorcycle or an off-highway motor vehicle subject to identification under California law. See the vehicle contract cancellation option agreement for details."
Note: This same notice must also appear in the conditional sale contract. By the time this law goes into effect, July 1, 2006, all of the form company providers should have this notice in their pre-printed contracts and related software. They should also be able to provide you the separate, standardized, “Cancellation Option Agreement” referred to in the last sentence of the No Cooling Off Period Notice above. Make sure to offer this Cancellation Option Agreement during every used vehicle sale. Also make sure to throw out all of your old, out-dated, contracts and forms.

I. Trade in Vehicle Sold Before 2 Day Period Expires

1. Where the Cancellation Contract was purchased:
Where the buyer trades in a vehicle and also purchases the Cancellation Agreement, the dealer is prohibited from selling the trade in until the expiration of the two day period. If, however, the trade in is sold by mistake, (the dealer must prove the dealership has procedures in place to avoid this problem or else face a possible lawsuit), then the dealer must pay the buyer the fair market value of the trade in, or the value as stated in the contract, whichever is higher.

2. Where the Cancellation Contract was not purchased:
If the buyer was not charged for the Cancellation Contract, the dealer does not have to retain the trade in. However, the dealer must return the trade in if it is available, or refund the higher of the fair market value or the value stated in the contract.

J. Prior Return Exception – No 2 Day Cooling Off Period Required
The dealer does not have to offer a contract cancellation option to the buyer if the buyer has returned a vehicle to the dealer under a contract cancellation option within the prior 30 days.

K. Handling Returns During 2 Day Cooling Off Period
The vehicle is sold, for DMV paperwork purposes, as of the date the buyer signs the contract and takes delivery of the vehicle, even if they later return the vehicle during the 2 Day Cooling Off Period. Therefore, do not void the Reg 51, Report of Sale, even if you are still in possession of the Reg 51 when the vehicle is returned. The buyer’s operation of the vehicle during the 2 Day Cooling Off Period has caused DMV fees to be due so you must continue to process the paperwork according the to normal used vehicle rollback procedure. If you are unfamiliar with the rollback procedure, see Section 26.3 of these course materials to learn how to do a rollback.
Also, do not allow the buyer to drive the vehicle on dealer plates after they have purchased it. That is prohibited, and it also exposes you to greater liability in case of an accident.

L. Buyer’s Responsibilities

1. Return the vehicle to the dealer within two business days

2. Return the original contract and all original titling and registration documents provided

3. Not exceed 250 miles (or higher agreed upon number)

4. Vehicle must be free of all liens and encumbrances other than those arranged by the dealer or buyer at time of purchase.

5. Must return vehicle in same condition, less normal wear and tear.

M. Brokers and Consignment Dealers
Yes, the Customer’s Bill of Rights law also applies to you. You must provide the buyer with 2 Day Cooling Off Period option for vehicles selling for less than $40,000, as well as comply with all the other requirements of Bill of Rights.

N. Vehicle Inspection Forms
Note: The DMV is currently working on a proposed regulation requiring written vehicle inspection reports to be completed by dealers before delivery of the vehicle to the buyer. These will be written records of the condition of the car at the time of sale/delivery. The dealer gets to decide what is inspected and its condition at the time of sale/delivery. As part of the sale, the dealer can also contract to inspect and re-try (test drive) the vehicle if it is returned within the Two Day Cooling Off Period.